The Pros and Cons of Having Your Home as Your Biggest Long-Term Investment
Photo: Steven Puetzer
Is it all in the house? Ian MacNeill reports on the pros and cons of your home as your biggest and often only investment.
When my son brought his Grade 7 class to our home in New Westminster, B.C., for a “graduation” party a couple of years ago, my wife and I smiled at each other guiltily as a number of the newly minted millennials rushed around breathlessly describing it as an abode of the “rich.” Everything is relative, of course, but the truth is that we live in a modest four-bedroom home in a largely middle-class community where our neighbours are more likely to be nurses than doctors and firefighters than lawyers. It’s true that it has a reasonably noble bearing—the result of good “bones”—sizeable gardens my wife and I have poured much sweat and treasure into and an expansive view of the Fraser River as it wends its way past the condo towers lining its banks.
But it also carries a sizeable mortgage in the upper three hundreds, with the part of the house we do own having been paid for using pretty much every dollop of savings the two of us were able to amass prior to moving here from a townhouse in Vancouver.
Still, we consider ourselves lucky. Driven by foreign investment and all the usual irrational confidence in the long-term investment security of real estate, home prices in Metro Vancouver continued climbing to dizzying heights after we moved in three years ago, and there is still general agreement between us that we got into the single-detached market just in time. However, since our savings are well and truly tied up in our home it has become, ipso facto, the better part, if not all, of our retirement plan. Come a combination of hell and high water in the form of rapidly rising interest rates and a “correction” in housing prices when we need to sell, we can look forward to living out our declining years in a basement suite and coupon cutting to save money when we go shopping at the local Walmart.
Well, if both misery and home-owning hubris love company, it’s some consolation that we are not alone. Surveys suggest that almost a quarter of all Canadians lucky enough to own at least part of a home are relying on the equity they have built up in their castles to fund their retirement. Along with my wife and me, their number includes retired teachers Danielle Dewick, 68, and her husband, Brian Matthews, 78, of Almonte, Ont., a picturesque town of 5,000 on the banks of the Mississippi River, 45 kilometres south of Ottawa. Like us, they have the better part of their savings tied up in their home.
But, oh, what a home. Set on 16 acres along a country road, it backs onto wetlands that are home to migrating birds, deer, and coyote. The house itself—100 feet wide and 40 feet deep—is made of native yellow sandstone and features extensive landscaping as well as two ponds. “We always wanted to build a home from scratch, and this one has everything we ever wanted,” says Danielle.
The answer depends, to varying degrees, where you are and what kind of home you have, whether you still have a mortgage to settle when you cash out and, of course, what the future may bring, which none of us knows, and if we did, we’d bet it all on Vida Blew in the fourth and retire to Bali or Bedlam. Despite the fact that prices here in Metro Vancouver—one of North America’s hottest markets over the past five years—flattened at the end of 2016 and are even predicted to decline slightly in 2017, Todd Conner, a realtor who lives around the corner from us in New Westminster, says the future looks brighter than bleak.
“People still want to live here,” he says, adding that he has yet to see a stampede of older residents rushing to cash out before the oft-predicted housing-price Armageddon skeptics say is inevitable in a market that has experienced double-digit increases five years running. More often than not older people tend to unlock the equity in their home only when maintaining it becomes too much for them, he says.
Unlike Vancouver, which seems to have hit a wall price-wise as buyers and sellers alike take a collective breath waiting to see what’s going to happen as a result of an uptick in mortgage rates, stricter mortgage-lending rules and the recent imposition of a foreign buyers tax designed to frustrate rampant speculation in the housing market, the Greater Toronto Area (GTA) continues to sizzle, leading to at least a partial exodus, says Mississauga realtor Michael Czan.
“Many of my clients have already cashed out, fearing that the market is unsustainable,” he says. But plenty of others are standing pat. “Although my older clients do tend to see the equity in their homes as a safety net, in most cases they only choose to sell once they have exhausted all other financial options because they see their homes as more than just a financial investment. They’ve put a lot of work into them and have many memories attached to them; it’s not something they want to let go of easily.”
Of course, in the real estate landscape north of 49, Vancouver and Toronto are more exceptions than rules because both markets have been identified by global investors as good places to park their money in recent years. The knock-on effect for Canadian homeowners living in them and hoping to leave the casino with bulging pockets is reasonably good, but what about the ROC (Rest of Canada)? According to Halifax realtor Vanessa Roman, the reality is less reassuring for those hoping to exercise the home-as-retirement-fund option in Atlantic Canada.
“On the east coast, people have this idea that a house should increase in value, but in a city like Halifax there has been flat pricing and a strong buyer’s market for nearly three years, which comes as a shock to those relying on it to fund their retirement,” she says, adding that in an effort to avoid the stagnant-price trap, empty-nesters tend to sell their homes and then invest the proceeds before moving into rentals, further depressing demand. “You can make more money from your investments than you can betting on real estate,” she says.